Friday, October 18, 2019

Why the Financial System Will Break: You Can’t “Normalize” Markets that Depend on Extreme Monetary Stimulus

by Charles Hugh Smith, Of Two Minds:

Central banks are now trapped.

In a nutshell, central banks are promising to “normalize” their monetary policy extremes in 2018. Nice, but there’s a problem: you can’t “normalize” markets that are now entirely dependent on extremes of monetary stimulus. Attempts to “normalize” will break the markets and the financial system.

Let’s start with the core dynamic of the global economy and nosebleed-valuation markets: credit.

Modern finance has many complex moving parts, and this complexity masks its inner simplicity.

Let’s break down the core dynamics of the current financial system.

The Core Dynamic of the “Recovery” and Asset Bubbles: Credit

Credit is the foundation of the current financial system, for credit enables consumers to bring consumption forward, that is, buy more stuff today than they could buy with the cash they have on hand, in exchange for promising to pay principal and interest with their future income.

Credit also enables speculators to buy more assets than they otherwise could were they limited to cash on hand.

Buying goods, services and assets with credit appears to be a good thing: consumers get to enjoy more stuff without having to scrimp and save up income, and investors/speculators can reap more income from owning more assets.

But all goods/services and assets are not equal, and all credit is not equal.

There is an opportunity cost to any loan (i.e. credit), as the income that will be devoted to paying principal and interest in the future could have been devoted to some other use or investment.

So borrowing money to purchase a product or an asset now means foregoing some future purchase.

While all products have some sort of payoff, the payoffs are not equal. If I buy five bottles of $100/bottle champagne and throw a party, the payoff is in the heady moments of celebration.  If I buy a table saw for $500, that tool has the potential to help me make additional income for years or even decades to come.

If I’m making money with the table saw, I can pay the debt service out of my new earnings.

All assets are not equal, either. Some assets are riskier than others, with a less certain income stream or payoff.  Borrowing to buy assets with predictable returns is one thing, buying assets with highly speculative returns is another; regardless of the eventual result of the investment, the borrower still has to pay interest on the debt, even if the speculative investment goes bust.

The basic idea here is the loan is based on collateral, that there is something of value that is anchoring the loan above and beyond the borrower’s ability to pay principal and interest.

The classic example is a house: the lender issues a mortgage based on the market value of the house, i.e. what it can be sold for should the buyer default on the mortgage and the lender has to sell the collateral (the house) underpinning the loan.

The value of the collateral is obviously contingent on the market; the value of the house goes up and down depending on supply and demand, the availability and cost of credit, and so on.

If a lender loans me $500 to buy a new table saw, and I default on the loan, the table saw is the collateral. Unfortunately for the lender, the market value of the used tool is perhaps $250 at best.  So the lender loses $250 even after repossessing and selling the collateral.

If the lender loaned me $500 to buy champagne and I default, there is no collateral at all; the loan was based solely on my ability and willingness to pay principal and interest into the future.

When I say that all credit is not equal, I’m referring to the creditworthiness of the borrower.   

Lenders make money by issuing credit to borrowers.  The incentives are clear: the more credit they issue, the higher their income.

Given this incentive, it’s easy to convince oneself that a marginal borrower is creditworthy, and that a speculative investment is a safe bet.

This is especially true if the government guarantees the loan, for example, a home mortgage. With the government guarantee, there’s no reason not to take a chance on a marginal (risky) borrower buying a marginal (risky) house.

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The Adversaries Are Wall Street and London’s City — The Allies Russia and China

by Harley Schlanger, Rogue Money:

In just four weeks President Trump will deliver a State of the Union Address, with his promise to rebuild America’s economic infrastructure on the line, and in doubt. The United States and Europe are facing a new financial crash centered in Wall Street and City of London, and the President is wasting time pretending that the stock market represents a great recovery of the U.S. economy.

The American people, who have been rallying with us to defend the President from the British assault led by legal assassin Robert Mueller, must get through the heads of Trump and Congress that there has been no economic recovery. The warnings are multiplying that the immense corporate debt bubble is getting ready to collapse, and drastically cutting those corporations’ taxes will only force more air into that bubble and blow it out.

We need to break up the Wall Street banks fast, before that crash can happen, and create real value and productivity by putting — not $1 trillion — at least $2-3 trillion in new Federal credit into building new national infrastructure at the highest level of technology. That includes a high-speed rail network, as quickly and efficiently as nations like China and Japan build it. It includes advanced nuclear technologies, and getting NASA back all over the Moon and around it, and fusion power technology so that we can go to Mars.

The Treasury Secretary and Wall Street have sold President Trump the idea that the U.S. economy is in a big recovery. But why is the dollar way down against other major currencies in 2017, and still falling after tax cuts and interest rate increases? Why is the death rate still rising in America, life expectancy still falling? Why did opioid overdose deaths likely reach an ungodly 70,000 in 2017, including hundreds of people who died of overdoses while at work? Why, the last time corporations got to bring back overseas money at a super-low tax rate in 2005, did they spend 95% of it on buying stock shares and giving dividends? What followed shortly thereafter — prosperity, or a global financial crash?

President Trump’s recovery mistakes make it harder, now, to get the real rebuilding of American’s broken infrastructure which he wants, and will call for in that State of the Union. American activists now have to make that happen: To fix what, 65 years ago, President Eisenhower called “the appalling inadequacies to meet the demands of catastrophe or defense”, which are seen again now in hurricane destruction, power failures, uncontrolled fires, train wrecks. It takes a lot of new Federal credit, and EIR Founder Lyndon LaRouche has defined how to do that.

The President is even more sore beset by geopolitical thinking, which requires overseas adversaries, the defeat of which by war or otherwise must be the measure of American “winning.” Will he confront China on “trade”? China is building great infrastructure projects worldwide and working to eliminate poverty including in the United States, where its investments are giving hope to Governor Justice of West Virginia, our third-poorest state.

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The Deep State’s Plan ‘C’: Murder Donald Trump

by Mac Slavo, SHTFPlan:

Longtime Donald Trump advisor and confidante Roger Stone is warning once again about the deep state. This time, he said that the deep state’s “plan C” is to simply murder the president, since plans A and B won’t work out.

With trust in the mainstream media at an all-time low, the global elitists are on the verge of losing their grip on humanity’s throat. And Roger Stone says emphatically that they plan to go down swinging. According to New American, the Deep State’s “Plan A,” is the imploding “investigation” into alleged “Russian collusion” by Special Counsel Robert Mueller, said Stone. If and when that fails, which Stone suggested was likely and soon, the establishment would move to “Plan B.” In essence, Plan B would involve trying to get a majority of Trump’s cabinet to declare him unfit for office. This would allow Trump to be removed under the U.S. Constitution’s 25th Amendment. This scheme is also going to most likely fail, Stone said. Last but not least, though, Stone warned of “Plan C,” which is killing the president.   

In a wide-ranging interview with The New American magazine at his Florida studio, Stone offered insight into Trump — and into his enemies [the deep state] and their tactics. “It’s easy to forget that the shocking upset that Donald Trump pulled off has never been forgotten or acknowledged by the globalist cabal that has really infected both of our major parties,” he explained. “I say that as someone who is a sentimental Republican, but a Republican in the mold of Barry Goldwater who wanted government out of the bedroom, out of the boardroom, that believed in peace through strength, not, you know, neocons cruising the globe looking for expensive wars to profiteer in and stick our nose in.” –New American

Roger Stone isn’t the first person to see Trump as a target of the deep state. Mike Adams, the Health Ranger, has said he feels that the deep state isn’t afraid to nuke a city in the United States in order to kill Trump and blame North Korea for the result.

“He’s a shock to the system,” said Stone, a legendary political operative who, in addition to his longtime relationship with Trump, has served as a senior campaign aide to Richard Nixon, Ronald Reagan, Senator Bob Dole, and others. According to Stone, Donald Trump’s election represented the “hostile takeover of the old Republican Party, which we now hope to remake in his image as a party that stands for economic nationalism, that stands for putting American interests ahead of globalist interests, and re-affirms our sovereign rights as Americans.”

“Now, I think the establishment, at this time, when the president has just passed his tax cut, has cut these regulations — so you see a record stock market, you see unemployment at all time lows, you see a booming housing market — it’s easy to misread the deep enmity and hatred that the globalists and the Insiders have for this president, and to underestimate their resolve to remove him.”

Stone believes the Deep State would, in fact, attempt to murder the president when Plan A and B fail, which seems the likely scenario. “Having written books on the Kennedy assassination, having highlighted the attempted assassination of President Ronald Reagan by people deeply associated with the Bush family, I think the establishment has Plan A, Plan B, and Plan C,” he said. “Plan A is very clearly a take-down by the illegitimate Special Counsel Robert Mueller, who was appointed not by Jeff Sessions, not at the direction of the president, but by this fellow Rosenstein, who is a close associate of Mueller and [disgraced former FBI boss James] Comey, and who is a globalist Bush insider, a liberal Republican, who somehow got the number two position in the Trump Justice Department,” Stone warned, saying the establishment was now hoping Trump would fire Mueller to regain the upper hand.

The other thing that is becoming more and more apparent, Stone said, is that “neither Mr. Mueller nor the House nor the Senate Intelligence committees nor the Judiciary committees in those bodies have been able to find any evidence of Russian collusion.”

“Sorry, but Don Jr.’s meeting with a Russian lawyer that provided nothing is perfectly legal and proper,” Stone said. “There’s nothing wrong with it. She produced no evidence, but what we did learn is that she was in the country thanks to the Obama FBI, without a visa, and she was popping up and being photographed at Hillary rallies and in John McCain’s office. She’s a Quisling! It’s a setup! She’s a spy. She delivered nothing. It’s an attempt to entrap Donny Jr. in a meeting that’s perfectly innocuous and perfectly legal.” But the deep state’s Plan B is to invoke the 25th Amendment.

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Former FBI Asst. Director: ‘5th Estate’ at FBI was Planning ‘Something’

by Onan Coca, Freedom Outpost:

In a terrifying analysis delivered on Fox News former FBI Assistant Director James Kallstrom confirmed one of our greatest fears.

Kallstrom explained that the way the FBI has been operating for the last year is quite unnatural. He further argued that every new leak exposing their anti-Trump sentiments and behavior dig the agencies hole ever deeper.

Kallstrom argues that the revelations about current Assistant Director Andy McCabe and the operatives who have been working closely with him and special counsel Mueller are so out of step with normal agency behavior that it constitutes proof-positive that there was a conspiracy afoot in the FBI.

Almost more worrisome for Kallstrom though, is the lack of oversight or investigation from the Department of Justice.

It’s the DoJ’s job to oversee what is taking place in the FBI and thus far Kallstrom has seen no evidence that the Attorney General is working to get to the bottom of these anti-Trump efforts.


For over a year and a half we’ve been talking about this reverse crescendo. We started with Comey and all his crazy actions that I thought were outside the main of how I thought the FBI should operate. 

And now we come to focus on this Fifth Estate that I’ve been talking about, multiplicities of people. Now we know it also includes a bunch of sycophants in the FBI that were part of the Comey team, and apparently, people in Justice, who I believe are now exposed on obstruction of justice. 

People tweet each other, and they send text messages, but they don’t plan — the FBI is not in the business of planning to destroy a president of the United States. I think they were trying. I think they were way above their capability. 

This guy thinks he’s the Lone Ranger here, this Peter Strzok, he thinks he’s going to float in here and if by any chance Trump gets elected, which is a catastrophe in his mind. I don’t know what his mind is thinking. 

Obama basically destroyed the country, now you have a guy who wants to fix it. If that’s his thinking, obviously from the words we saw they were in Andy’s office plotting some kind of thing. And I think that some kind of thing is what we’re seeing right now. 

Ever since he was elected, we’ve seen this facade, this phony challenge to Trump about collusion in Russia. Nothing could be further from the truth. All the collusion is with the Democrats. 

And it is very depressing to the FBI — FBI agents. 99.9% are hard working patriotic guys and girls who come to work for the good of the country. 

And you’ve got this deputy director [Andrew McCabe] who should have been out long ago for his actions, and then you have Peter Strzok, and who knows how many others. You’ve got Comey with all the phony stuff that he did. 

The big mystery here is the Justice Dept. What is the Justice Dept. doing? What is the attorney general doing?

It is too bad for Donald Trump. who I have known for a long time. With all his things he does that people don’t like, his policies are what is going to bring the U.S. back, globally in my view. Yet you have this huge storm of people putting roadblock after roadblock. It is a mystery to me why he hasn’t called the attorney general and told him to give the oversight committees the documents they’re looking for. 

Why is the Trump Justice Dept. not complying with subpoenas from the [Congress] who want to look into this thing? 

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Undeniable Proof That the UN Is Here to Take Our Guns

by Dave Hodges, The Common Sense Show:

I certainly do not have a crystal ball, but I am an historical expert on how tyranny comes to power. I have studied the emergence of every tyrannical government in the 20th Century and they ALL have certain things in common.

As I stated in an earlier part of this series, Obama was to be the setup man in which he was to erase as many civil liberties as possible. His mission was to push America to the edge of destruction (e.g. Obamacare) and then the ruthless Hillary Clinton was to be the closer and complete the job. The intended Deep State one-two punch of Obama and Clinton followed the traditional roll-out of all tyrannical governments.

How a Tyrannical Government Emerges

There are some small variations, but ultimately, all despotic governments come to power in much the same way.

  1. They all begin as a shadow government and when their purposes cannot be met through covert means, they emerge with a vengeance. For example, Hitler, Mao and Stalin all masqueraded as champions of the people (i.e. “The People’s Republic of ….”).
  2. To come to power they ALL create a false flag attack, or they create the perception of extreme danger (i.e. psychological false flag attack) that poses a grave danger to the public which must be met with extreme prejudice. Subsequently, for the safety of all, guns must be seized. Of course this is a deception because the people are being disarmed so they cannot defend themselves for what is coming. The University of Hawaii conducted a study called the Demicide Project and what they found was that there were 19 genocides in the 20th Century and that all of them were preceded by gun confiscation.
  3. People who are dangerous to the existing order are rounded up and millions are exterminated because they are believed to be a threat to the new order.

The Failures of the Obama Administration

It is clear that Obama had three primary missions when he came to power, namely, erase the Constitution, destroy the economy and disarm the people so they could not defend themselves when enough citizens would awake to the tyranny that they were living under.

Obama succeeded in all of his Deep State mandates except for one. He was never able to pry the guns from American hands. From 2010-2012, became the false flag President. Despite all of the false flags that took place during that time, very little progress was made in the effort to disarm the people. Why was Obama so intent on disarming America? The answer is simple, his handler knew that much of the country, tens of millions to be exact, would never accept a repressive communist government. To accomplish this goal the people had to be disarmed. Obama failed in this Deep State mandate.

Subsequently, Obama had to turn to Plan B to neutralize an armed populace. Obama became the first President to bring Russian soldiers to America. The Russians would be permanently embedded under false pretenses and then would emerge at the right time when America was in rebellion. I have literally written dozens of articles on this development. Here is an example from one in 37 articles I have authored on this subject which are available through the search engine on this site:

Because the Obama administration has been caught bringing in the Russians, these traitors were forced to invent a cover story. Subsequently, the administration announced the creation of a series of extra-constitutional “agreements”(that means illegal agreements) which justified the presence of Russian soldiers on American soil. These agreements were inked in June of 2013 in Washington, D.C., at the fourth annual meeting which led to the illegally created “U.S.-Russia Bilateral Presidential Commission Working Group on Emergency Situations.” This extra-governmental organization, formed under the Obama administration, is one of almost two dozen similar “working groups” bringing together top U.S. and Russian officials. These two bodies are cooperating on everything from the drug war and agriculture to terror, science, “rule of law” (could that be code for martial law?), health, environment, energy, nuclear issues, education, culture, media, business, arms control, and more, according to the U.S. State Department. The Senate has not ratified any of the international deals, as required by the Constitution of the United States. And as such, this is an illegal agreement. However, this is not just an illegal agreement, IT CONSTITUTES TREASON AGAINST THE AMERICAN PEOPLE.

As far back as 2011, whn it was clear that Obama was not going to be able to seize American guns, other journalists have exposed this fact as well. I subsequently published the following account: Sherrie Wilcox of Knoxville,TN. Sherrie has seen and photographed DHS armored vehicles back in March with Russian soldiers manning the vehicles in eastern Tennessee and Western Kentucky. The following video details how Russians are training in DHS vehicles.

The United Nations

I could fill a book with examples of UN/Foreign troops on American soil. The abovementioned three examples are merely prepatory background material in order to lay the groundwork for the latest example of UN/Foreign troops on American soil.

Obama had to bring in the Russians to be poised as part of the UN Peacekeeping force that would make its presence known in times of strife.

George Soros has tried to create the sufficient strife that would involve the need to quell civil insurrection. However, that has not happened. Therefore, one must be manufactured.

As Russian, Chinese and other foreign troops embed themselves in our country awaiting the need for them to emerge to subdue a population in rebellion against Deep State tyranny, the foreign troops would be called upon “to deal with American traitors” to the New World Order. Even the MSM recognizes this fact as evidenced by the recent news release from Fox News:

UNITED NATIONS –  The United States is announcing its support for a set of principles that give a green light for U.N. peacekeeping troops and police to use force to protect civilians in armed conflicts.

U.S. Ambassador Samantha Power told a high-level U.N. meeting Wednesday focusing on the responsibility to protect civilians that the United States was “proud” and “humbled” to join 28 other countries that have pledged to abide by the 18 pledges.

U.N. peacekeepers from these 29 countries are now required to act in cases where civilians are in danger.

“The Kigali Principles are designed to make sure that civilians are not abandoned by the international community again,” she said, recalling how U.N. peacekeepers left Rwanda before the 1994 genocide and Srebrenica before the 1995 massacre.”

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Improving cellular health – The key to reversing disease symptoms


by JD Heyes, Natural News:

Although the mitochondria, those tiny structures inside our cells, are absolutely essential to energy production and longevity – mitochondrial health has been largely overlooked and ignored by Western medicine. Think about it: if we (as a society) fully appreciated the importance of improving cellular energy (and took action) – many of our current health problems would simply fade away.

For example, removing all the known neurotoxins from every vaccine (i.e. mercury and aluminum) and banning the use of artificial sweeteners in our food supply would be a big step in the right direction.

Thankfully, there are a growing number of healthcare professionals like, Sally Schutz, MD that think cellular health should be a top priority – in order to avoid disease symptoms. If you or someone you love is dealing with a serious health issue, like cancer or heart disease, then, I urge you to tune into the next NaturalHealth365 Talk Hour with Jonathan Landsman and Sally Schutz, MD.

To hear this FREE show – visit and enter your email address for show details.

This Sunday, Jan. 7th, on the NaturalHealth365 Talk Hour, Jonathan Landsman and Sally Schutz, MD, (“Dr. Sally”) will talk about the association between cellular energy and disease symptoms – and explore the many ways to protect and restore mitochondrial integrity. You’ll discover many valuable ‘biohacks’ that can help increase well-being, improve physical health and reverse disease symptoms – naturally.

Chronically impaired mitochondrial health will lead to a cascade of dangerous conditions

Often referred to as the “powerhouses” of the cell, the mitochondria are the primary energy source for the body. In a process known as cellular respiration, mitochondria take in nutrients, break them down and use the molecules to produce energy – in the form of ATP, or adenine triphosphate.

Mitochondria are also linked to vital body functions such as detoxification – with is a must for optimal health. When cell mitochondria become damaged, impaired or compromised, cellular respiration and ATP production are decreased – causing cellular inflammation, pain and fatigue.

Impaired mitochondrial function inhibits the ability to absorb nutrients; negatively affects brain function and diminishes cardiovascular performance – to name a few unwanted outcomes. However, there are some simple ways to improve mitochondrial health.

Don’t miss the next NaturalHealth365 Talk Hour with Jonathan Landsman and Dr. Sally for some great health tips designed to help you in 2018 and beyond!

To hear this FREE show – visit and enter your email address for show details.

Support mitochondrial health by reducing your toxic burden

We are under attack from a wide range of toxins in the environment, including pesticides, heavy metals, and synthetic chemicals. These pro-inflammatory substances activate free radicals, threaten the immune system and impair the body’s all-important detoxification system.
However, you can reduce exposure to toxins, and protect your cellular health.

Dr. Sally advises switching to an organic diet, and avoiding GMOs, ‘fast foods,’ and all kinds of processed food ingredients. Your cells don’t like this junk.

For maximum benefit, choose lots of seasonal fresh produce – which tends to be more nutritious and less costly. In terms of animal products, opt for organic, grass-fed or free-range varieties. This way you will automatically avoid so many unwanted chemicals, antibiotics and synthetic hormones that harm your health.

Dr. Sally also advises bypassing toxic, chemical-laden household cleaners in favor of things like, white vinegar or essential oils – as a trusty, safe and effective alternative.

Reading the fine print on product inserts – particularly those of vaccines – can help you make an informed choice when it comes to this personal decision. Dr. Sally notes that vaccines are extremely toxic – containing heavy metals, formaldehyde, aborted fetal cells and even, glyphosate, the weed-killer ingredient used in Monsanto’s Roundup.

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A Return to Financial Sanity?


by Gary Christenson, Deviant Investor:

Financial sanity and stability may not return, but we can protect our assets and learn from the discussion.

The DOW, S&P500, NASDAQ and other markets sell at all-time highs. However, many imbalances exist within our financial world.

This is not new – things have been crazy before, are now, and will be again. But to regain financial sanity we need:

From “Doug Casey on the New Fed Chair

“In an ideal world there would be some radical changes. The best thing for the US in the (famous) long run is to go “cold turkey.” To abolish the Federal Reserve, fire its thousands of employees with their worthless PhDs. Return to 100% reserve banking with a strict separation of demand and time deposits. Depoliticize money by using gold, not Federal Reserve Notes. And default on the national debt, which is rewarding crony capitalists, and will turn future generations of Americans into serfs. And massively deregulate. And abolish the income tax, while cutting spending 90%. Etc. Etc.

The chances of that happening are exactly zero.”

It’s easy to see there is no chance for a return to financial sanity as defined by Casey.

Doug Casey is not alone in his assessment of the self-created problems in our current financial system. Alasdair Macleod in “Deflation Must Be Embraced” defines what he calls the minimum policy changes required to escape from the credit-fueled merry-go-round that will end up destroying us all.”


The choices are: continue the insanity and hope to survive the next election/crash/war/disaster, or contemplate the abyss. Macleod’s eleven point plan for change is:

  • “Accept that another nation’s business is not your affair. Cease all military spending, other than required for purely defensive purposes. The resources and technologies released by this move would be redirected by entrepreneurs for the service and benefit of consumers.
  • Stop colluding at the supra-national level to follow common monetary and economic policies. G20, G8 meetings only promote interventionist groupthink, to the exclusion of a proper understanding of policy errors.
  • Embrace the benefits of free trade, removing all tariff barriers. If a foreign manufacturer wishes to dump excess capacity into your economy, let your consumers reap the benefit.
  • Deregulate, making it clear that individuals must look out for themselves. The state is useless at protecting the consumer. Companies that plan to prosper will realize their reputations for fairness and honesty are paramount, instead of hiding behind regulations.
  • Encourage family cohesion, instead of automatically expecting the state to look after your elderly, your handicapped and your children. Socializing family values is not the business of the state, which cannot deliver welfare services effectively.
  • Reduce the state’s role in the economy with a long-term objective of absorbing less than 20% of GDP.
  • The state should be banned from running deficits. Tax must match state spending. Capital loaned to the state will no longer be drained away from productive use in the private sector.
  • Re-introduce sound money, by means of a currency-board arrangement tied to physical gold, which is deliverable on demand to all-comers.
  • Make it clear to the banks and their customers there is no lender of last resort, and no deposit guarantees. Deregulation of financial services and the removal of this safety net will force banks to stop speculating in financial markets and be conservative in their financial gearing, to protect their reputations. Interbank loan rates will penalize financial aggression.
  • Sack all government economists, and close all government statistical offices. At best, they serve no constructive purpose, and at worst they are repositories for bad advice, as growing economic and financial instability attest.
  • Close the central bank, and replace it with a currency board with one purpose: to regulate the issuance of the currency convertible into the national stock of gold.”

Yup, he’s not expecting a return to financial sanity.

“We criticize Venezuela and Zimbabwe, because their mistakes are obvious to us. But we fail to realize the only difference between them and us is the speed of their failure compared with ours.”

Macleod sees “money printing” and inflation in our future – with Zimbabwe and Venezuela leading the way. Oops!

The process and direction are clear. The uncertainty revolves around the timing and degree of the inflationary disaster.

Consumer price inflation is here to stay. Consider prices from 1970 to show how consumer price inflation is “hard-wired” into our financial system.

From Casey on choices:

“It will be a deflationary collapse if the Fed doesn’t continue buying debt and creating new dollars. And a hyperinflation if they do.” … “the government and the Fed will definitely veer towards more inflation.”

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Phillips Curve R.I.P.


by Paul Craig Roberts, Paul Craig Roberts:

For a decade central banks have printed enormous quantities of new money. The excuse is to stimulate the economy by reviving inflation. However, the money has, for the most part, driven up the prices of financial assets instead of consumer and producer prices. The result has been a massive increase in the inequality of income, wealth, and opportunity.

The quantitative easing policy followed by central banks is based on belief in an economic relationship between inflation and GDP growth—the Phillips curve—that supply-side economics disproved during the Reagan administration. The belief in the Phillips curve persists, because supply-side economics was misrepresented by the financial media and neoliberal junk economics.

The fact that something as straightforward and well explained as supply-side economics can be misrepresented for 35 years should give us all pause. When successive chairmen of the Federal Reserve and other central banks have no correct idea what supply-side economics is, how can they formulate a workable monetary policy? They cannot.

Phillips Curve R.I.P.

Paul Craig Roberts

Republished with permission from The International Economy

The Phillips Curve is the modern day version of the Unicorn. People believe in it, but no one can find it.  The Fed has been searching for it for a decade and the Bank of Japan for two decades.  So has Wall Street. 

Central banks’ excuse for their massive injections of liquidity in the 21st century is that they are striving to stimulate the 2% rate of inflation that they think is the requirement for sustained rises in wages and GDP.  In a total contradiction of the Phillips Curve, in Japan massive doses of central bank liquidity have resulted in the collapse of both consumer and financial asset prices.  In the US the result has been a large increase in stock averages propelled by unrealistic P/E ratios and financial speculation resulting in Tesla’s capitalization at times exceeding that of General Motors. 

In effect pursuit of the Phillips Curve has become a policy of ensuring financial stability of over-sized banks by continually injecting massive amounts of liquidity. The result is greater financial instability.  The Fed is now confronted with a stock market disconnected from corporate profits and consumer disposable income, and with insurance companies and pension funds that have been unable for a decade to balance equity portfolios with interest bearing debt instruments.  Crisis is everywhere in the air. What to do?

The Phillips Curve has been working its mischief for a long time. During the Reagan administration the Philips Curve was responsible for an erroneous budget forecast. In the 21st century the Phillips Curve is responsible for an enormous increase in the money supply. The Reagan administration paid a political price for placing faith in the Phillips Curve.  The price for the unwarranted creation of money by central banks in the 21st century is yet to be paid.

The Phillips Curve once existed as a product of Keynesian demand management and high tax rates on personal and investment income. Policymakers pumped up consumer demand with easy money, but high marginal tax rates impaired the responsiveness of supply. The consequence was that prices rose relative to real output and employment. Supply-side economists said the solution was to reverse the policy mix: a tighter monetary policy and a “looser” fiscal policy in terms of lower marginal tax rates that would increase the responsiveness of supply. 

During the 1980s the economics establishment was too busy ridiculing supply-side economics as “voodoo economics,” “trickle-down economics,” “tax cuts for the rich,” and for allegedly claiming that tax cuts pay for themselves, to notice what I pointed out at the time: the dreaded Phillips Curve with its worsening trade-offs had disappeared. The high GDP growth rates of the economic expansion beginning in 1983 were accompanied by inflation that collapsed from near double-digit levels to 3.8% in 1983 and 1.1% in 1986. Of course, the economics establishment wasn’t interested in such embarrassing results, and so the story became the “Reagan deficits.”  The establishment reduced supply-side economics to the claim that tax cuts paid for themselves, and the deficits proved supply-side economics to be wrong. Case closed. This remains the story today as told by Wikipedia and in economic classrooms. 

The implementation of the Reagan administration’s policy was disjointed, because Fed chairman Paul Volcker saw the supply-side policy as a massive fiscal stimulation that would send already high inflation rates soaring.  Concerned that monetarists would blame him for what he thought would be the inflationary consequences of irresponsible fiscal stimulus, Volcker slammed on the monetary brakes two years before the tax rate reductions were fully implemented. This was the main reason for the budget deficits, not a “Laffer Curve” forecast that was not made. The Treasury’s forecast was the traditional static revenue estimate that every dollar of tax cut would cost a dollar of revenue.

In effect, the Phillips Curve became an ideology, and economists couldn’t get free of it. Consequently, they have misunderstood “Reaganomics” and its results and subsequently policymakers have inflicted decades of erroneous policies on the world economy.

As so many have observed, if we don’t understand the past, we cannot understand the present. To understand the past, let’s begin with Reaganomics.

So what Was Reaganomics?

“Reaganomics” was the media’s name for supply-side economics, which was a correction to Keynesian demand management. Worsening “Phillips curve” tradeoffs between employment and inflation became a policy issue during the Carter administration. The Keynesians had no solution except an incomes policy that had no appeal to Congress.  This opened the door to a supply-side solution.

Demand management treats the aggregate supply schedule as fixed. Fiscal and monetary policies were assumed to have no impact on aggregate supply, a function of technology and resources.  Changes in marginal tax rates, for example, would, if expansionary (lower rates), move aggregate demand along the aggregate supply schedule to higher employment; if contractionary (higher rates), the policy would reduce inflation by reducing aggregate demand and employment.

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Brick & Mortar Meltdown Reaches Movie Theaters


by Wolf Richter, Wolf Street:

Is jacking up ticket prices helpful in this environment?

We keep hearing the good news, and we love it. During the four-day weekend, “Star Wars: The Last Jedi,” became the highest-grossing movie of 2017 with 58.1 million tickets sold in the US and $517 million in ticket sales so far, according to movie data provider The Numbers. “The Last Jedi” was released on December 15 and grossed $220 million that weekend, making it the movie with the biggest weekend of the year.

And it continues to sell tickets into 2018. This, as the Wall Street Journal put it, gave Walt Disney “another banner year at the box office that left rival studios fighting for leftovers.”

The top ten movies in US ticket sales in 2017:

  1. “The Last Jedi” (Walt Disney): $517 million
  2. “The Beauty and Beast” (Walt Disney) $504 million
  3. “Wonder Woman” (Warner Bros.) $413 million
  4. “Guardians of the Galaxy” (Walt Disney) with $389 million
  5. “Spider-Man: Homecoming” (Sony) $334 million
  6. “It” (Warner Bros.) $327 million
  7. “Thor: Ragnarok” (Walt Disney): $311 million
  8. “Despicable Me 3” (Universal): $267 million
  9. “Logan”(20th Century Fox): $226 million
  10. “The Fate of the Furious” (Universal) $226 million

These are big numbers. And ticket sales for “The Last Jedi,” which continue into 2018, will likely remain behind the record $937 million in domestic box office sales raked in by “The Force Awakens” in 2015.

And that may be symptomatic.

The number of actual tickets sold in US movie theaters in 2017 fell 3.6% year-over-year to 1.25 billion tickets, according to The Numbers. That’s down 21% from “Peak Ticket Sales” in 2002, when box offices sold 1.58 billion tickets. In fact, the number of tickets sold in 2017 was the lowest since 1995.

This chart shows what’s going on in terms of filling seats in brick-and-mortar movie theaters in the US:

Sharp price increases per ticket Band-Aided the pain of dropping ticket sales until 2012. Since then, even those price increases haven’t been enough. According to The Numbers, the average ticket price has more than doubled from $4.35 in 1995 to $8.90 in 2017.

Only $8.90?

I have to say that it has been years since I paid less than $10 a ticket for a major movie. For example, a ticket for “The Last Jedi” goes for $22.49 — not for a family of three, but for just one adult — at one of the AMCs in San Francisco. Not exactly an encouragement to go see it. But there are cheaper movies out there, and there are cheaper cities too, and national averages might not parallel personal experience.

Since Peak-Ticket-Sales in 2002, the average price has jumped 53% from $5.81 to $8.90 in 2017. At the same time, the number of tickets sold has plunged 21%. Connection? Maybe. One thing’s for sure: When ticket sales drop, the industry has to raise prices to make up for the drop; and the more the industry makes up with price increases for dropping ticket sales, the more consumers start looking for alternatives.

Thus overall ticket sales in dollars only inched down 0.8% in 2017 to $11.13 billion. Fewer and fewer people go to the movies, but they pay more and more each time, and as ticket prices have soared (right scale), overall ticket sales in dollars (left scale) are only languishing rather than plunging:

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Firefighters Respond To Fire At Clintons’ House In Chappaqua


from ZeroHedge:

In a day that turned from boring, to bizarre, to berserk in just a few short hours, the newsflow continued when Lohud, a news source for Rockland and Westchester counties in New York, reported that firefighters were responding to a fire at Bill and Hillary Clinton’s house in Chappaqua.

New Castle police have confirmed a fire at the Clintons’ home in Chappaqua, however, it was not immediately clear if the Clintons were at home when the fire erupted just before 3 p.m.

Police declined to give further details on the fire at 15 Old House Lane where Bill and Hillary Clinton have lived for nearly 20 years after buying it for $1.7 million in 1999.

But scanner reports said it was a bedroom fire and has been extinguished.

The house, built in 1889, features five bedrooms over 5,232 square feet and a pool on its 1.1 acres.

In August 2016, the former president and past presidential hopeful bought the four bedroom house next door, at 33 Old House Lane, for $1.16 million. In October, they got in trouble for not having a permit for a kitchen renovation and filling in the in-ground pool.

The following video reveals the Clinton’s house in Chappaqua on Old House Lane.

Putting it all together:

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